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China Economics: The Shantytown Mysteries

We conducted a study to demystify the correlation between China’s shantytown renovation and real estate prices in the third-tier cities in China. From August 2017, Chinese authorities have indicated that the shantytown renovation program would be gradually under stricter conditions for fear that the policy would inflate even more bubbles on real estate prices in Chinese third-tier cities. However, based on monthly data during May 2015 – December 2017, we found that a higher amount of pledged supplementary lending on the shantytown renovation program decelerate the growth of real estate price in the third-tier cities. It implies that the cooling down of the shantytown renovation program could mean accelerating price growth (or decelerating price drop) of real estate prices in all first-, second- and third-tier cities as a result of reducing supplies. In our view, this is completely in contrary to what investors’ belief that the price will drop or the price growth will decelerate.

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